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Whistleblower awards, part 2: size of financial awards

On behalf of Frost & Associates, LLC posted in Tax Evasion on Saturday, August 20, 2016.

Let's continue the discussion we started last week of IRS whistleblower awards.

Last week, we noted that a recent Tax Court ruling has broadened to scope of awards to be based not only a percentage of unpaid taxes, but also on criminal fines and civil forfeiture.

In this part of the post, we will explain how the IRS whistleblower program is in a sense two programs, with different award amounts depending on the amount of taxes that information from a whistleblower enables the IRS to collect.

The IRS has offered financial incentives to informants for decades. In 2006, however, Congress passed legislation directing the IRS to create a more formal program. As a result, the IRS now has a Whistleblower Office.

The section of the Internal Revenue Code that governs this is section 7263. Two subsections, 7623(a) and 7623(b) establish the structure for the two types of whistleblower awards. The two types are different in the size of the awards and how they are calculated.

Large awards are those involving taxes of $2 million or more. Whistleblowers who provide information that leads to collection of that much or more can get up to 30 percent of what the IRS is able to collect.

Smaller awards are for tax amounts that are under $2 million. In those cases, the amount of awards is 15 percent.

In recent years, there has been plenty of grumbling from certain members of Congress about the effectiveness of the whistleblower program. But section 7263 requires the IRS to issue a report on the program every year. And the cumulative amount paid out typically runs into the hundreds of millions of dollars.

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